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This is the Kodak Moment for the Auto Industry. Electric vehicles are here to stay. Their market acceptance and growth will continue....

Sunday, May 20, 2018

Tesla Model 3 Adds Options For Dual Motor


At 1:30 AM Pacific on the morning of 5/20 Tesla dropped a new version of the Model 3 design studio. As you can see in the image above, it has placeholders for the (coming any second now) dual motor AWD and the (coming later this year) standard battery options.

Still no sign of the white interior, but it should be coming soon according to Musk's tweets.



Saturday, May 19, 2018

7 Years of Nissan Leaf Ownership

Seven years of driving a Nissan Leaf. The good, the bad, and how it has aged.

On May 18th of 2011, I took ownership of a Nissan Leaf. The car that would eventually be mine was one of the first 2000 that Nissan produced. My car left Japan just hours before the Tōhoku earthquake and tsunami devastated the island country.

When the car arrived, I had no regrets. I fell in love with the smooth quiet peppy acceleration. I took friends and coworkers out for ride-&-drives and a few of them were soon owners too.

For commuting and running errands, this car was great. The range at in-town speeds is much better than the freeway speed range. For trips in the 50 to 100-mile range, you could make it work given the right infrastructure and a little patience. Anything beyond that was asking more than the car is designed for or my patience would usually allow. But that's Okay, any vehicle supports only a limited set of cases where it works well. You would not take a sports car to haul lumber or a truck and trailer to the racetrack. Cars work best when you use them in cases they are well designed to accomplish. For this car, that meant local trips. This was my commuter car and it worked great for that. We did sneak in a couple longer trips too.

Battery Degradation

The range, as reported by the car, is shown in the images below.


Fully Charged - 9 Capacity Bars - 2011 Leaf in 2018
The range that the car reports is not very reliable. The estimate is based on your recent driving style and road conditions. You could coast down a long hill and have this range estimate increase far more than it should based on just the energy regenerated. For example, the 118 miles as reported in 2011 was never a possibility under real driving conditions. This is one reason that some Leaf owners refer to this gauge as the Guess-O-Meter.

A better way to track the range is to look at the pack capacity reported by the battery management system and apply the EPA rated fuel efficiency. We've been tracking our Leaf's range this way since 2012. You can see the results in the chart below:

2011 Nissan Leaf: Range measured via LeafSpy over 7 year period

I expected some degradation in the first year. That's normal. However, I expected the degradation to level off and be very gradual thereafter. Unfortunately, as you can see in the graph below, we've had notable, nearly linear, range loss each year. There is some minor noise in the graph from seasonal temperature changes, but the trend is clear and still heading down.

With ~50 miles of range, the Leaf is never too far from home nowadays. This has been my biggest disappointment with our long-term ownership. I wanted this car to last 10 years. Nissan has done little to resolve the Leaf degradation problem even in the current 2018 Leaf models.

Our Leaf has 57,408 miles on it. This is an average of only ~8,200 miles per year. And this car was not in southern California or Arizona, it was in Oregon where we have great weather for Li-ion batteries with very few days each year over 100 F and very few below freezing.

The only consolation that Nissan offers is “refabricated” packs at a discount. This program started this month in Japan and should be rolling out to the rest of the world soon. The refabricated packs cost $2,850 USD. For comparison, new packs cost $6,200 USD for 24 kWh; $7,600 USD for 30 kWh; and $7,800 USD for 40 kWh.

This allows you to extend the life of your car, but the fundamental cause of the degradation is still there.

Missed Opportunity 

Nissan had a lead in the affordable battery-powered electric vehicle (BEV) market. The Leaf started selling 18 months before the Tesla Model S came to out in June 2012, and the Leaf was at a much more accessible price. In 2013, the Leaf was the best selling BEV, beating offerings from Mitsubishi, Ford, Honda, Tesla, and others. In 2014, the Leaf even outsold the Chevy Volt making it the best selling plug-in car in the US. Then in 2015, things changed.

Soon after the Leaf began sales in hot climate states like Arizona, some people started to notice that their batteries were quickly degrading. Nissan did not have a liquid-cooled thermal management system in the Leaf. After this problem came to light, Nissan did not redesign their pack to use an advanced liquid-cooled thermal management system. Instead, they made changes to the battery chemistry to attempt to make it more heat tolerant. The anecdotal reports on the Leaf forums said that these new batteries degraded just as fast as the old batteries. Many potential buyers (especially in warmer climates) lost faith in Nissan's EV program.

Mo Battery, Mo Heat

In 2016, Nissan bumped the battery pack capacity up to 30kWh, up from the previous 24kWh. In 2018, Nissan again bumped the pack capacity, this time to 40kWh. In both cases, Nissan opted to not install a liquid-cooled thermal management system. With more battery capacity, comes more heat; more heat means more degradation. How would these new packs age?

Now, two years later, we know the results from the 2016 upgrade. Green Car Reports quotes a study that states that the 30kWh pack declines at 3 times the rate of the 24 kWh pack. Note that I (and many others) were already disappointed with the degradation rate of the Leaf. And now, in a newer car, it was even worse!


And how will the 40kWh pack perform? Nissan has taken steps to slow the degradation, but you might not like their solution. In the 40kWh cars, Nissan throttled the rapid charging rate. This was dubbed RapidGate by Transport Evolved. Slowing the charging rate limits the usefulness of the car for things like road trips. If you are just using the car for short trips, this is not a problem, but potential buyers need to understand the limitations or they might be severely disappointed with their purchase.

If you are considering a Nissan Leaf, I'd lease it rather than buying, at least until Nissan has a car with a proven long-term track record. A lease will allow you to own the car for a few years, a time period well within the battery lifespan before there is significant cumulative degradation, and then walk away from it as the batteries slump. Another option to consider is a used Leaf. It would certainly have some range loss, but as I said above, if you are aware of the limitations and only plan to use the car in a manner consistent with its capabilities, then you can likely pick up a used Leaf on the cheap and replace the battery pack if/when you need to.

2019 Might Be Better

Nissan sold off their battery division in 2017. PushEVs reports that the 2019 Leaf will use an LG Chem cells similar to those in GM vehicles. With these new cells, I assume that Nissan will finally install a liquid-cooled thermal management system and uncork the rapid charging rate. We'll find out later this year.

Our Last Year of Leaf Ownership

A new electric car will take the Leaf's charging spot in our garage this year. We have a day-1 reservation for a Tesla Model 3 and we plan to trade in or sell our Leaf. Tesla's vehicles have had long-term studies that show 90% capacity remaining after 150,000 miles. We excepted to keep our Leaf for 10 years; with the degradation rate we're experiencing that is no longer an option. Perhaps the Model 3 is a car that will go the distance.

Summary 

Nissan had an early lead in the affordable electric car market. When stepping into a new technology, issues are common. The important thing for a company to do is to acknowledge the issues and rapidly make improvements. Nissan did not do this. They stubbornly stuck to their inferior thermal management system despite the clear evidence that it was producing poor battery life. It's disappointing to see them squander the early mover advantage that they had. This was the first Nissan that I had ever purchased. Initially, for several years actually, I loved it. If things had gone differently, they could have had a customer for life. Instead, my next car will bear a different badge. I hope the 2019 Leaf has much better long-term reliability and that Nissan can maintain some of the goodwill that they built with the Leaf.

You can read my 6-year review here.

Sunday, May 13, 2018

When Will The Federal Tax Credit For Tesla End? [April 2018 Update]

We've had an ongoing series here to track the US sales of Tesla cars to determine when they'll hit the 200,000 mark. This is an important sale for the US EV Tax Credit and it looks like this milestone sale will be happening within the next few months.

The April sales numbers (as estimated by the InsideEVs scorecard), have been added to our chart below.
As you can see, our trendline predicts that the 200,000th sale will occur early in July of this year. If this is when the milestone sale occurs, what will it mean for the incentive?

How Long Will The Incentive Last?

The tax incentive does not stop as soon as the 200,000th car is sold. Instead, the 200k sale starts a phase-out period. The incentive stays in full effect for the rest of the quarter with the 200k sale and for the next quarter. Then the incentive is at 50% for 6 months and then 25% for 6 months.

Possible US Incentive Phase Out Scenario for Tesla
So, if you want to buy a Tesla and receive the full $7500 federal tax credit (assuming you qualify), then (if this prediction is correct) you need to take delivery of your Tesla this year.

Earlier Predictions

In January of 2017, our model predicted that Tesla would sell their 200,000th US vehicle in April of 2018. April has come and gone and the model was too optimistic. Ironically, our prediction was considered pessimistic compared to the other predictions made at this time. Remember, the Model 3 had not yet started production and Musk was making ambitious promises.

By October 2017, it was clear that Model 3 production was not off to a flying start. The car that was designed to be easier to build than any previous Tesla, had plunged the company into "production hell" and accordingly our model had moved the milestone 200k vehicle to June of 2018.

As the rest of 2017 ticked by, our model kept the milestone delivery in solidly in June. By February 2018, it seemed clear that Tesla could hit the milestone in late Q2, but doing so would be a bad idea. First, hitting the incentive late in a quarter hastens the phase-out, but more importantly, it would mean that the full incentive would not be in effect for Q4 2018. If production continues to grow, Tesla could deliver more than 100,000 cars in the last 3 months of this year. That is 100,000 people that would be disappointed not to receive the full tax credit. So, how do you continue to ramp production, while also delaying the 200k US delivery? Send cars to Canada. Which is precisely what Tesla has begun to do.

Thursday, April 19, 2018

Powerwall!


We just received an email from Tesla that we'll be receiving a Tesla Powerwall 2. Thank you to everyone that used our referral code. This will go well with our 12 kW of solar PV. I'll blog the install and show you how it impacts our energy utilization.

http://ts.la/patrick7819

Tuesday, April 10, 2018

Should I Charge To 100%? Electric Car FAQ


As I write this, for the past 27 months, EV sales have been higher every month. That means there are many new EV drivers out there on the roads today. Charging is one of the subjects of frequently asked questions for new owners:

Should I charge to 100%?
Should I drain the battery before charging?
Should I plug in every day?
Will charging make the battery degrade?
How should I charge to prolong my battery life? ...

Let's look at each of these.

Q: Should I charge to 100%?

A: Only when you need it.

When you need a full charge, for a road trip for example, then, by all means, charge to 100% but this should not be your normal daily charge level. 

Each battery chemistry is a little different. Today's electric cars use Lithium-Ion batteries. Li-ion is "happiest" in the middle third of its charge range. This is where the electrons and ions of Lithium are relatively balanced between the anode and the cathode. 

For daily driving, if you can keep the charge within the middle third you'll maximize your battery life. So for daily driving, charge up between 70 to 80% and avoid discharging below 20%. This will put most of the battery usage in this sweet spot for extending battery life.  

Q: What If I Do Need a 100% Charge?

A: Time the charge so the car does not sit at 100% for long.

When you do need to charge to 100%, there are a couple things you should know:
  1. Charging slows down as the pack approaches full especially with DC fast charging. It can take as long to go from 80% to 100% as it did to go from 40% to 80%. 
  2. Don't stay at a 100% charge for too long: Letting the battery sit at 100% for an extended period of time will result in battery degradation. So plan your charging such that you can hit the road soon after the battery hits 100% full. 

Q: What if I Need to Store My EV?

A: Leave the battery at about a 60% charge. And leave it plugged in if your car allows you to stop charging at less than 100%.

When your car will be sitting for a long time, you don't want to leave it at 100% charge. You do, however, want to have the car plugged in so it can run battery thermal management as needed. So to store your car, set the battery charge at or near 60% and plug in the car.

For one example, here's some of the relevant text from the Tesla Model 3 manual.


Charging Q&A

Here are the quick answers to each of the questions we started with:
  • Should I charge to 100%? No.
    Only charge to 100% for road trips and don't leave the car sitting at 100%.
  • Should I drain the battery before charging? No.
    Li-ion batteries don't suffer from memory effects like Nickel-Cadmium batteries.
  • Should I plug in every day? Yes.
    Set the charge level where you need it and plug in anytime you can. A plugged-in EV is a happy EV.
  • Will it make the battery degrade? No.
    Modern EVs have software that prevents you from damaging the battery in any significant way by your charging habits. You can extend the life a little with careful considerations, but the car is for your use and fun. Charge it however you need to in order to get around as you need. 

More Details

If you want to read more about the impacts of depth-of-discharge (DOD) and battery state-of-charge (SOC) on battery longevity here is an excellent paper on the topic.

Modeling of Lithium-Ion Battery Degradation for Cell Life Assessment

It explains that shallow discharging offers longest battery life. An EVs typically only allow 85% of the battery to be user exposed. So when your car says that it is 100% charged, that is 100% of the "user portion" of the capacity. This is done to prolong battery life.

The paper further shows that full discharge cycles, like those used in many consumer electronics, allows for the longest runtime, but the battery generally has significant degradation within 2 or 3 years worth of charge cycles. This is okay for something that you replace every 2 or 3 years, but would not be good for a car.

Saturday, March 31, 2018

Moats: Why Tesla Can Do What Other Car Companies Only Dream About

A moat surrounds a medieval castle to protect from attackers
Castel of Brede, photo by Lionel Lourdel 
In modern business parlance, a moat is something that protects a business from competition or gives it an advantage. A moat could be a trade secret, patented product or process, or an asset that represents a significant capital investment. A moat could be a partnership, an exclusive license, a government granted limited-monopoly, or any barrier to a resource or market. The term was popularized by Warren Buffett. He covers moats in his book Buffett Beyond Value and says that he doesn't invest in businesses unless they have one or more moats; otherwise, it's a quick race to the bottom.

"In business, I look for economic castles protected by unbreachable moats." ~Warren Buffett

This story is about Tesla's moats, but I don't mean to imply that Buffett would invest in Tesla. Tesla is far from the value investments of the Berkshire Hathaway portfolio. Rather, Buffett's comments are to demonstrate the importance of moats. Morningstar even has a guide called Why Moats Matter. Understanding the moats a business employs is clearly important to understanding the business and its future. 

In no particular order, here's a list of Tesla's moats: mall stores, direct sales, Supercharger network, brand loyalty, EV mindshare, mission-driven, Tesla Energy, Panasonic partnership, rockstar status CEO, electric motor technology & manufacturing, battery technology & manufacturing, software development, connected cars, AI, talent magnet, fleet learning, SpaceX, vertical integration, over-the-air updates, mobile ranger service, Gigafactory, investor expectations, first mover advantage.

These moats enable Tesla to do things that other automakers cannot even consider. Some of these moats are wider than others. Let's group them and look at them in more detail. If you know of any Tesla moats missing from the list, let me know below.

Stores & Direct Sales

When you buy a Tesla product, you buy it from, well, Tesla. This might seem like a silly statement, but that is not how most car companies operate. Traditional automakers have dealerships. Dealerships are not owned by the manufacturer, they locally owned businesses. In most states, the automakers are legally forbidden from owning a dealership. Dealerships are middlemen. This means that when you pay for a car, you must pay a price that allows both the manufacturer and the dealership to make a profit on the sale.

Tesla has stores in shopping malls. This allows you see their cars in a familiar and comfortable place. The Tesla employees in the store are not commissioned salespeople. They are there to answer questions, not to "get you into a deal today". There is no haggling; the cars have a Hobson's Choice price: Take it, or leave it. You pay the same price as Elon Musk's mom would pay, the same price as any Tesla board member would pay. This matches well with the online shopping model that Gen Y and younger are accustomed to.

Additionally, Tesla can sell their cars, solar, and energy storage products all under one roof. There's likely to be significant overlap in customers for these products.

* Moats: Mall Stores, Direct Sales

Connected Cars & Over-the-Air Updates

All of Tesla's cars have wireless service. The original cars had 3G, today they have 4G LTE, and when 5G is the standard they'll come equipped with that (or maybe something better). This connectivity allows the navigation system to have up-to-date maps and real-time traffic. Every smartphone has had this feature for over a decade, but in cars, this is still a rarity. In other cars, maps could be years out of date and/or cost hundreds of dollars to update.

The maps and traffic data are nice, but the real advantage of a connected car is software updates. Tesla is constantly improving their software (more on software later) and when a new version is released, after a couple taps on the screen, your car is updated to the latest and greatest. This keeps the ownership experience exciting. You can recapture a bit of the "new car smell" when a new feature or easter egg is added.

* Moats: Connected Cars, OTA Updates, Refreshed SW keeps cars relevant

No Dealerships

A dealership's agenda might not be the same as the manufacturer's and it is not likely the same as yours.

We just discussed over-the-air updates. These are an example where a dealership might have a different interest than you or the manufacturer. Over-the-air updates are convenient for owners; you just wake up to a vehicle with updated software. Well, dealerships in many states could prevent a manufacturer from implementing this feature in their cars. Why? Because that is considered "servicing the vehicle" and the dealership agreement guarantees that all manufacturer service is contracted to the dealership. The dealerships want you to bring your car in often so they have a chance to upsell you on service or to a newer car. If a manufacturer pushes updates over-the-air, they might find themselves in a lawsuit or two with the dealership associations as Tesla has been, albeit for different reasons.

Dealerships make most of their money from service. Anything that prevents a car from coming into the shop is a missed opportunity for them to profit from the customer. Electric vehicles already require far less maintenance than gas cars, if wireless software updates were allowed too then there would be even fewer reasons for the car to visit the dealership on a regular basis.

With Tesla owning their own stores and service centers, Tesla is able to set their own direction without a complex web of multi-state dealership agreements. This gives them flexibility and allows them to define the ownership experience for their vehicles.

* Moat: Ownership of customer experience, No margin sharing

Panasonic Partnership

Tesla and Panasonic are partners in battery and solar technology and manufacturing.

Panasonic announced it would invest more than  $1.6B into the Tesla Gigafactory 1 battery plant. Gigafactory 1 supplies the battery cells for Tesla Model 3, Powerwall, and Powerpack products. Panasonic directly manufactures the 18650 cells that are used in the Model S and X.

Panasonic is also a partner in Gigafactory 2 for solar roof production.

Tesla currently has a hot brand and they are shipping a lot of Panasonic technologies. Panasonic certainly is looking at Tesla as a growth area for their products. Many other automakers are using LG Chem batteries. This means that Panasonic has a vested interest in seeing Tesla survive and grow. This could mean that Panasonic would be willing to invest more into Tesla if cash infusions are needed as Tesla hits bumps in the road getting to mass market production.

* Moats: Strong technology and financial partnership with a behemoth

EV Mindshare

It seems like nearly all headlines about electric cars (any electric car) mentions Tesla. The car being reviewed is either a "Tesla Killer" or "How Does Car X Compare To The Tesla ..."  This was true for the new Leaf, the Jaguar iPace, the Porsche Mission E, and nearly any other new EV coming to market.

This is no different than hybrids and the Toyota Prius. Any new hybrid that comes out is compared to the Prius, because Prius is the benchmark for hybrids. Similarly, Tesla is the benchmark for electric cars. Over the next decade, many automakers will make EVs and they will all be compared to Tesla (range, price, styling, performance...).

As more automakers bring EVs to market, they will be playing the game on Tesla's court.

* Moats: First Mover Advantage, home field advantage, de facto standard

Mission-Driven, Brand, & Rabid Fans

Tesla has a fanbase that other car companies dream about. They have Apple-like devotion with people lining up to buy Tesla's first affordable mass production vehicle. Why does Tesla have such devoted fans? There are as many reasons as there are fans. However, I'll suggest one important reason: Tesla is mission-driven. They are an uncompromised pure-play.

Tesla is not reluctantly making EVs just to meet a state mandate. They didn't recall and crush EVs from the late 90s. They don't have a 100-year history of making gas-burning cars that have put billions of metric tons of CO2 into our atmosphere. They haven't participated in a conspiracy to shut down public transportation. They were not caught cheating on emissions tests.

Tesla makes exciting cars that are fun to drive!

They also make solar panels that can charge the car with energy from the giant fusion reactor in the sky known as the Sun. They make storage batteries so the stored solar energy can power your house after the sun goes down.

People are inspired by Tesla. Their many many fans give them free advertising. Fans make ad videos, write blogs, record Tesla podcasts and YouTube channels. Tesla held a competition for the best fan ad and there were hundreds of submissions. One couple loves Tesla so much, they had a Tesla-themed wedding. Few brands have such devotion.

* Moats: Devoted fan base, dedicated brand, free from historic stains, free fan-based marketing

SpaceX 

SpaceX is not part of Tesla, but Elon Musk is at the helm of both companies and they have more cross-over than is initially apparent. Their cross-overs include aluminum fabrication and AutoPilot as well as less direct connections too.

When the engineers at Tesla run into a tough problem, they can literally call rocket scientists. “That’s cross-fertilization of knowledge from the rocket and space industry to auto, back and forth; as I think it’s really been quite valuable,” Musk said on a Tesla earnings call.

Aluminum Fabrication: When you are making rockets, you want them light and strong. Seams are generally weak points. SpaceX uses a specific friction stir welding process that fuses metal parts together without melting them. The end result is stronger and lighter than a traditional aluminum weld, with just 10% waste metal.

AutoPilot: SpaceX's rockets have to operate autonomously for much of their flights, including landing on drone ships at sea. This is very different than navigating city streets, but both of them need to interpret the data from the sensors. Raw data from radar and sonar are very noisy and false positives are common. Decoding these signals is tricky and vitally important. Sharing hard-learned lessons here improves both systems.

Marketing: SpaceX launched a Tesla Roadster into space. This was a huge marketing success. Most aerospace companies would have just used a dummy-load for this type of test launch. So for just the small cost of a used Roadster and a mannequin, Tesla and SpaceX had the most talked about launch in the last decade. According to Reuters, Apple's and Google's corporate brands dropped in an annual survey while... Tesla's rocketed higher after sending a red Roadster into space.

Starlink: Starlink is a satellite broadband communication project by SpaceX. It is to provide low-cost, high-performance satellite-based internet connectivity. SpaceX has just launched the first of the low-earth orbit satellites and plans to put nearly 12,000 of them into orbit by the mid-2020s. The first obvious customer for this service is Tesla. Today, Tesla has to pay for the LTE connection in each of their vehicles. After Starlink is up and running, Tesla can use this network for all of their connected car activities. The service wouldn't be free to Tesla, but it would be one of Musk's companies paying another one of Musk's companies.

Mapping is an important part of autonomous car tech. There are no publicly announced plans, but it's possible that SpaceX satellites could help provide some of this information to Tesla.

* Moats: Access to SpaceX's advanced materials scientists. Access to cross promotions. Possible highly affordable connected car internet service.

Recruiting Talent

If you were fresh out of school and wanted a job at a car company, would you rather work at one of the legacy car companies or at Tesla? Tesla is an innovative Silicon Valley company that makes sexy fast cars. If you want to work in battery tech, AI, automation, or many other fields, Tesla is the place that is treading new ground.

In March of 2018, Tesla was on LinkedIn’s list of top companies that American professionals want to work for, placing 5th and outranking Apple and Disney. Tesla is listed along with tech companies, not automakers. They are (and they are perceived as) a tech company that makes cars, rather than just a car company.

Over 500,000 people applied for jobs at Tesla in 2017. With this many candidates, Tesla is able to hire the cream of the crop. To do things that have never been done before, you have to hire highly skilled people.

* Moat: Desirable employer

Vertical Integration

Most car companies today are predominantly assembly and branding companies. Other than the internal combustion engine, they do very little of the engineering. Instead, they rely on their suppliers. In many cases, even the car designs are outsourced. This means legacy automakers are buying parts and buying others' innovations. Cars generally have 15% or less margin at wholesale, whereas the component suppliers may have 50% margins.

Tesla certainly has suppliers too, but they manufacture far more of their car's components than other automakers. Tesla designs and manufactures their own electric motors and they have vastly improved upon the AC Propulsion motor they started with a decade ago. By controlling the manufacturing of their parts -- especially batteries -- from start to finish, Tesla could create a significant cost advantage.

* Moats: Vehicle design, vehicle engineering, product margin

Software

Tesla's cars are often described as "computers on wheels". They are software controlled. This allows new features to be added, upgrades, improved user interfaces, voice control, and more. The big screen is central to the car and not a de minimis afterthought. Tesla has a large in-house software team to deliver these features that are vital to the driving and ownership experience of Tesla.

Other automakers contract their software to outside firms for various tasks. This means that the navigation “look and feel” may be different from the entertainment system’s.

* Moats: Talented in-house software engineering (see recruiting talent above)

Fleet Learning & AI 

All of Tesla's cars have their full AutoPilot sensor suite of cameras, radar, and sonar. As we discussed above, Tesla's vehicles are connected cars. This means they can receive new software over-the-air. This allows Tesla to test their AutoPilot updates in shadow mode on hundreds of thousands of cars driving millions of miles before rolling them out to customers. Even cars that don't have enhanced AutoPilot or self-driving features enabled are helping to contribute to Tesla's validation efforts. Tesla has more than 300,000 cars on the road around the world gathering valuable feedback for their AI.

Compare this to the autonomous drive efforts of any other company. Other companies have a couple dozen cars on the road with engineers or safety drivers behind the wheel. It takes a long time to get a million+ miles of validation under those conditions. Then the software gets an update and the validation effort has to start all over.

* Moats: Massive fleet of fully instrumented cars

Supercharger Network

One of the drawbacks to EV driving is the difficulty of locating charging facilities while on road trips. Tesla has solved this problem. In most regions where they sell the cars, there is a vast Supercharger network. You simply type the address in for your destination and the car will plot a route for you, showing you each stop that you'll need to make along the way. You can drive from Seattle to Miami or LA to Portland, Maine using Tesla Superchargers all along the route to recharge your car.

Today, there is no other plug-in car that can make such a claim. CHAdeMO and CCS charging stations are clumped in urban areas on the coasts with a large charging wasteland betwixt and between.

Additionally, Tesla's Supercharger network is reliable and easy to use. With other networks, you have to join and carry a card, fob, or app that you have to tap, scan, or activate. With Tesla's network, you just plug in. The protocol for determining who you are and what, if any, fees apply happens automatically when the car is connected.

Reliability and availability are vital to a charging network. If you show up at a location near empty, expecting to charge, only to find the charging station broken down or occupied, this can ruin your trip. Tesla Supercharger stations generally have 6 or more charging stalls. Most have 10+ and a few have as many as 50 charging stalls. So if a stall or two are down for repair, there are still plenty of spots where you can charge. If you're curious about a Tesla Supercharger location along your route, you can tap on it in the car and it will show you how many stalls are there, how many are operational, and how many are occupied. Other networks generally only have 1 charging stall per location. If it is not working or blocked, you're out of luck.

Other automakers are generally not investing in charging networks. They see themselves as automakers, not fuel suppliers. Since their business is not dependent on selling EVs, they are content to let this remain as someone else's problem.

Tesla, on the other hand, is growing a vast network of Superchargers around the globe where they will be able to sell energy above the local residential rate (while still cheaper than gasoline). Tesla has said that charging will not be a profit center for the company, but the revenue will certainly help to pay for expansions of the Supercharger network. Tesla has more than 1200 locations where you can fast charge, with more location coming online every week.

* Moats: Building thousands of Supercharging locations is both time and capital intensive. Network ease of use & reliability. Revenue stream from 'fueling' vehicles.

Workplace & Destination Charging

While we're on the topic of charging, it is important to mention destination charging. There are hotels, bed & breakfasts, wineries, restaurants, ski lodges, malls, and other places that have Level 2 charging for Tesla vehicles. These are often a free amenity at these locations for patrons. These locations want well-heeled Tesla drivers to visit their establishment.

Tesla recently expanded this program and is now offering Level 2 chargers free to employers too.

Other car companies are far behind in providing charging support at this level.

* Moats: Vast network of workplace and destination charging stations

Gigafactory

Tesla has a giant battery factory in Nevada. By footprint, it is one of the largest buildings in the world. When it is in full operation, this one factory will make more batteries annually than all of the world's combined factories made in 2013. Tesla has plans for similar factories in Asia and Europe as well.

These factories require a massive outlay of capital. They require a commitment to battery-powered cars as the next generation of personal transportation. Other automakers are only tepidly dabbling in EVs. They are making low-volume "compliance" cars and some are still working on fuel-cells or hail-mary internal combustion solutions.

* Moats: Biggest battery factory in the world, with more coming. Significant capital expenditure.

Investor Expectations 

Why is it that Tesla can spend billions of dollars on battery factories and global Supercharger networks? Whereas, if other automaker CEOs hemorrhaged cash at this rate, they'd be fired faster than a Tesla in Ludicrous mode. The simple answer is the expectation of the board of directors and the shareholders. People who invested in legacy automakers bought into a stable business that pays regular dividends.

Tesla investors, on the other hand, bought into a growth company. They are not looking for Tesla to be profitable today, or anytime soon. Tesla's investors are looking for top-line growth rather than bottom-line profits. Today, Tesla has about 20% of the luxury car market. If they can expand into affordable cars, semis, small crossovers, performance cars, pickup trucks, and who know what else with a similar market share, Tesla could be one of the most valuable companies in the world. And as we discussed above, owing to direct sales and vertical integration, Tesla has the ability to sell cars with better profit margin than any other automaker can. Or so goes the hope of people (like me) who are invested in Tesla.

Amazon is a good comparison. For years Amazon sank their revenue back into their growth rather than paying out dividends to investors. In May 1997, Amazon went public at $18 per share. As I write this, the stock is nearly $1500 per share. And that's after 3 stock splits. Amazon investors were looking for growth, not profits and dividends. Today, Tesla investors have the same growth mentality. As market darlings, Tesla can raise capital by issuing shares, bonds, or taking loans. This allows them to pursue big efforts as long as they are delivering growth.

* Moats: Investor expectation of growth rather than quarterly profits

Rockstar CEO

Love him or hate him, Musk is by far the most widely known CEO of a car company since Henry Ford. This fame and fandom allow Musk to put out a message and have it echoed through his social media presence. When he tweets, it is news. The Boring Company, another of Musk’s ventures, has sold hats, flamethrowers, fire extinguishers, and now lifesize LEGO-like interlocking bricks made from tunneling rock. Fans have bought and will buy these because they are fans and want to signal their devotion to the Musk tribe.

This media attention can be a double-edged sword. When Tesla misses a deadline or a Tesla vehicle is in a crash, it gets as much media attention as Tesla's successes do. But for a company, the only thing worse than too much media attention... is *no* media attention.

Musk's past accomplishments, circle of friends, and current status allow him to raise money. This is important until Tesla's vehicle production is at a volume that would allow them to be consistently profitable (about 1 year from now by our estimation).

* Moats: Media attention, Ability to raise capital

Dreadnaught

In addition to trying to reinvent personal transportation, auto sales methods, and home energy, Tesla is trying to reinvent the way that cars are manufactured. This is "the machine that builds the machine".

In 2016, Tesla acquired German automation company, Grohmann Engineering. This was one step to reinvent the auto factory. Musk has said that their factory will look so radically different from traditional factories that it would seem like an alien dreadnaught. Staying true to Tesla's Silicon Valley root Musk said, "It might look like a giant chip pick-and-place machine...".

Musk has said that if you look at the rate that cars come off the end of the line in today's auto factories, it's slower than "grandma with a walker". Musk would like his factory to move at least at a jogging pace. He wants the robots to be moving so fast that air drag is a relevant factor.

Musk has even talked about Tesla selling their factory designs as a product.

Today, however, companies like GM, Ford, and Toyota are not impressed with the speed or quality of Tesla's manufacturing and have no intention of trading in their factories for a Tesla Dreadnaught.

The results of the current version 0.5 Dreadnaught are not Earth-shattering, but that does not mean that it won't eventually be revolutionary. For example, when Nicolaus Copernicus first introduced his heliocentric system, it was not well received. In fact, initially, it did a worse job at predicting the movements of the planets than the existing Earth-centric Ptolemaic system. That was because the Ptolemaic system had been refined for 1400 years and it had been finely tuned to account for all of the perturbations in the night sky.

Today Toyota's Kaizen method is vastly superior to Tesla's Dreadnaught. The modern car manufacturing process is a big improvement over the assembly line that Ford used, but it is an evolution of that same 100-year-old method. The question is, once refined, will Dreadnaught be the system that replaces it?

The modern assembly line was designed around people operating it. Robots have replaced many of the people on the line, but the robots are retrofitted into a system made for people. Dreadnaught, on the other hand, is a system that is designed around robots. This is not all that different from the clean slate design of Tesla's cars. They are not gas cars retrofitted with batteries and motors. They were designed from the beginning to be electric.

Dreadnaught could be the system that allows manufacturing to make a leap forward, or it could be an expensive failed experiment. Time will tell.

* Moats: None yet, but maybe Dreadnaught 3.0 will make the manufacturing world take notice.

Summary

Tesla has looked at all the objections that someone may have to buying an electric car and they have done their best to resolve them. They have made EVs that are cool, fast, and fun. They have made road trips possible. They have made home and destination charging convenient. They are working on battery and vehicle manufacturing to increase the volume and bring down the cost. They have allowed you to "drive on sunshine". Tesla has created a compelling narrative that is far beyond just the vehicles they sell.

In the process of resolving the objections to electric vehicles, Tesla has created a long list of moats. Tesla's moats are not unbreachable, but some of them are far outside the culture of the traditional automakers or beyond the template that the investors impose upon them. Even the automakers that are making EVs are trying to compete with the car's features or price. They don't even know how to compete with the Tesla narrative. It seems Tesla will stand apart from the crowd for many years, even after the legacy automakers become fully committed to electric cars.

Disclosure: I'm long Tesla
http://ts.la/patrick7819

Saturday, March 17, 2018

Internal Combustion Engine Jumps The Shark

The Preußen, a German steel-hulled five-masted ship-rigged windjammer built in 1902
The internal combustion engine jumps the shark, or to put it into terms from another transportation field, it enters the "More Sails" phase.

The first successful steam-powered vessels were built for use on canals and rivers in the early 1800s. Not long after, there were ocean-going hybrid ships with sails and steam. The steam engine didn't have to wait for the wind, could sail in any weather, and didn't have to jibe and tack. With these ships, new trans-Atlantic crossing record times were being set and more ships began incorporating steam engines.

Not all ship makers embraced the new technology. Some responded to the threat by doubling down on the legacy that they knew and loved. To compete with the record-setting times, they added more sails. This is when sails jumped the shark. The effort prolonged the demise, but did not prevent it. During the late 1800s, large sailing ships almost completely disappeared as steam power took over. The bulk of the transition occurred during just one century.

Internal combustion engines (ICE)

Much like the ships that added more sails, there are automakers today turning the ICE engineering to eleven in an attempt to prolong its life. In late 2017 Mazda announced a 'Holy Grail' breakthrough in engine tech with their Skyactiv-G high-compression gasoline engine. Similarly, Toyota made claims in February of this year that they had created the world's most thermally efficient 2.0-liter gas engine. They are not the only ones, despite dieselgate (more on that below), just weeks ago, Volkswagen's leader announced a "Diesel Renaissance" is on the horizon and Nissan has been talking about HCCI as the next great thing in engines since 2013. Occasionally, you'll see a story about rotary engines posed to take over... These are all signs of "more sails".

Engines are a mature technology. It's highly unlikely that there will be a breakthrough that greatly changes their fuel economy. Internal combustion engine tech is over 100 years old and it has had a lot of R&D sunk into it. There are fundamental limitations to combustion.

The headlines often say something like "New Engine 30% More Efficient" but this is very misleading. First, the results that you get in the ideal conditions of the lab are, just that, ideal (in a warmed up engine at optimal RPM...). In the real-world, this will be reduced, but for the sake of argument, let's assume they really have a 30% improvement. Gasoline engines are about 20% efficient. So a 30% improvement would mean 50% efficiency, right? Wrong. That headline means 30% better than 20%. This is what I call "marketing math". If you were at a restaurant and the bill was $20 and you left a generous 30% tip, that would be $6. Appling this to engines, you could call a 26% efficient engine 30% better than an engine that is 20% efficient. A headline that reads "6% improvement" does not get as many clicks as "30% improvement". If they are comparing the improvement to a lower efficiency starting point, marketing math can make the improvement percentage even higher.

Even in the unlikely event that an engine with a 50% thermal efficiency were to be created, it still would not compete with the 80 to 95% efficiency of its new rival, the electric motor. Even an efficient gasoline engine is still burning gasoline and emitting pollutants into the air where we live and breathe.

Model T vs Today

The original 1908 Ford Model T had a fuel efficiency of 21 MPG. Not including hybrids, the average fuel efficiency of the gasoline-powered cars on the road today is not much better than the original Model T. More than 100 years later there was no big breakthrough that allowed 200+ miles per gallon.

Dieselgate 

Emissions cheating is yet another symptom of the engine apostles clinging to the old technology and pushing it beyond its capabilities. Either the emissions requirements could be met, or the performance requirements, but not both. The majority of this press coverage focused on Diesel, but some gasoline engines were found to be using defeat devices as well.

As a society, we no longer want the health impacts or the environmental impacts that fossil fuel engines cause. Emission standards increased to reduce these impacts, but engine technology is just not capable of being something other than what it is, a combustion machine.

Hybrids Are Transitional

Just as the earliest Atlantic crossing ships to use steam engines were hybrids, some of the cars available today are a mix of traditional internal combustion and electric motors. The Toyota Prius was a landmark hybrid car. It nearly doubled the fuel economy of other cars at the time of its US introduction. Today, there are plug-in hybrids from many automakers. You can plug them into a standard outlet in your garage overnight and the next day the battery will be full. This allows you to drive some limited number of miles on electricity. Then when the battery is drained, it just uses gas from the tank and you never have to worry about mid-day charging.

Driving a plug-in hybrid allows you to enjoy many of the benefits of an all-electric vehicle without ever worrying about where you could plug-in. If you are not already driving all-electric or not ready to jump in with both feet, I would recommend that you get a plug-in hybrid as your next vehicle. Depending on the electric range, you could cut your gasoline usage in half. You'd get to experience the smooth quiet acceleration of an electric motor and still have the safety net of using gasoline when you need it.

Sailing Into The Sunset

The introduction of the steam engine to ships has many parallels to the electric motor's entry into cars.

Just as the first steamships were used on canals and rivers, many of the early electric cars of this generation were urban runabout or commuter cars with less than 100 miles of range. This class of electric car filled these niches very well, but they were not a general purpose vehicle.

Just as the first steam engines to cross the Atlantic did so as part of a hybrid vehicle design, the first "transcontinental" vehicles to utilize electric motors were hybrid cars.

It took nearly 100 years for the engine to fully replace sails. However, just as everything else happens faster in our modern era, transitions are speeded up too. Today the Chevy Bolt EV and the Tesla Model 3 are for sale. These are just the first of many long-range affordable electric cars that will be coming to market. Over the next decade, things will change radically.

ICE has jumped the shark. It is not dead yet, but the writing is on the wall. Don't let it take you, your career, or your business down with it. I'm not sure if engines will be history by 2030, 2050, or 2070, but this is the century of their demise. It's time to consider electric cars rather than putting more sails on your internal combustion vehicle.

http://ts.la/patrick7819